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C O N F I D E N T I A L SECTION 01 OF 05 ULAANBAATAR 000667 
 
SIPDIS 
 
SIPDIS 
 
CORRECTED COPY; INFO ADDRESSEES ADDED; TEXT CHANGE IN PARA 
¶24. 
 
E.O. 12958: DECL: 09/01/2016 
TAGS: MG PREL EAID ECON PGOV KMCA MASS
SUBJECT: WHITHER U.S.-MONGOLIA RELATIONS? 
 
 
Classified By: Ambassador Pamela J. Slutz; Reasons 1.5(B) and (D) 
 
 ¶1. (U) As I conclude my three-year tour as chief of mission 
in Mongolia, I offer the following reflections on the past 
and recommendations for the future, as we pursue the 
"comprehensive partnership" with Mongolia that was first 
enunciated in the July 2004, and reaffirmed in the November 
2005, Joint Presidential Statements. 
 
U.S. Interests vis-a-vis Mongolia 
--------------------------------- 
 
¶2. (U) To paraphrase a portion of the 2004 US-Mongolia Joint 
Presidential Statement:  It is in the national interests of 
the U.S. that Mongolia be a democratic, prosperous, and 
secure "partner" which promotes friendly relations with its 
immediate neighbors; is an active participant in regional and 
international economic, political, and security forums; and 
supports U.S. global policy objectives. 
 
¶3. (C) Mongolia is not of strategic importance to the U.S., 
at least not in the conventional defense and security 
context.  Mongolia is too geo-politically, economically, and 
demographically challenged (i.e., landlocked between Russia 
and China, far from U.S. markets, and sparsely populated) to 
be a strategic partner.  And, Mongolia cannot afford to 
estrange its immediate neighbors, Russia and China, by 
becoming associated with U.S. military/security objectives 
vis-a-vis either of these countries. 
 
¶4. (C) Rather, Mongolia's value to the U.S. lies in it 
becoming a base of democracy in an otherwise unfriendly 
region.  Mongolia's transformation into a democracy and 
market economy has been largely peaceful, free and fair -- in 
contrast to other post-communist countries in Central and 
East Asia as well as to some so-called democracies in 
Southeast Asia.  Indeed, during the height of the ideological 
confrontation between "Asian values" and "Western values" in 
the 1990s, Mongolia joined the debate by rebuking Malaysian 
Prime Minister Mahathir during a 1997 visit to Mongolia and 
heralding itself as the prime example of where Asian and 
Western values (of democracy) are one and the same.  For the 
past year, Mongolia has been both the president of the 
International Conference on New and Restored Democracies 
(ICNRD) and a member of the Community of Democracies 
Convening Group. 
 
¶5. (C) With continued encouragement and technical/financial 
assistance from the U.S. and other democracies, Mongolia 
could play an important role in promoting freedom and (true) 
democracy around the world.  Our assistance, since 2000, to 
help Mongolia develop an international peacekeeping 
capability is a case in point.  Peacekeeping permits Mongolia 
to modernize its 7,000-man armed forces and bring them up to 
international inter-operability standards.  It also enables 
Mongolia to develop a modest national security force that is 
non-threatening to its neighbors yet capable of securing 
Mongolia's borders against terrorism and transnational crime. 
 As a direct result of our assistance, Mongolian soldiers 
today serve not just in Iraq and Afghanistan, but have begun 
to venture on peacekeeping missions elsewhere, including 
Sierra Leone and Kosovo.  As we help Mongolia build its 
peacekeeping strength from a battalion to a brigade in the 
next few years, Mongolia will become a familiar and stalwart 
presence in more world hotspots. 
 
¶6. (C) With a better (western) educated populace, wider 
integration into regional and global organizations, and 
greater confidence in building and managing bilateral and 
multi-lateral relationships beyond its traditional immediate 
neighbors, Mongolia could, in many respects, become the 
Poland of Northeast Asia.  Mongolia shares many of our values 
and strategic interests (i.e., denuclearization of the Korean 
Peninsula).  Mongolia has provided a friendly, cooperative 
environment for monitoring developments in China, North 
Korea, and the Russian Far East; and for facilitating the 
transit of North Korean refugee-migrants from North Korea via 
China to South Korea.  Mongolia has already initiated the 
process of integration with important regional and global 
organizations -- ARF member, OSCE Partner, SCO observer -- 
and needs only to become a member of the Northeast Asia 
 
ULAANBAATA 00000667  002 OF 005 
 
 
Cooperation Dialogue (NEACD), APEC, and the NATO Partnership 
for Peace to achieve its goal of being fully integrated into 
the trans-Eurasian community, stretching from the Pacific 
Ocean to Western Europe. 
 
Mongolian Interests vis-a-vis the U.S. 
-------------------------------------- 
 
¶7. (C) For Mongolia, the U.S. is not only a source of 
tangible and moral support for Mongolia's transformation from 
authoritarian communism to a market-oriented, democracy. 
More importantly, the "comprehensive partnership" with the 
U.S. strengthens Mongolia's sense of security and confidence 
vis-a-vis its historically aggressive and hegemonistic 
immediate neighbors, Russia and China.  Mongolia has been 
independent since 1924, but not sovereign over its own 
territory until the first democratic elections were held in 
July 1990 (and the last Russian soldier departed at the end 
of 1992).  Maintaining that sovereignty, in the face of 
political and economic pressure from its former colonial 
powers, Russia and China, is the real challenge facing 
Mongolia today.  As one former Mongolian Prime Minister put 
it succinctly: "We decided on the democratic, market economy 
path in large part to distance and free ourselves from our 
two immediate and hegemonistic neighbors.  Democracy is how 
we maintain our sovereignty.  Only by developing and 
integrating ourselves with other democracies and market 
economies, particularly with our "third neighbors" such as 
the U.S., Japan, South Korea, and Germany and with regional 
organizations, can we develop our people and guarantee our 
sovereignty." 
 
¶8. (C) Mongolia will need -- and deserves -- not only our 
moral support but also long-term tangible technical and 
financial assistance, trade and investment to enable it to 
develop and prosper. and to deal effectively with its two 
large neighbors.  As President Bush said in Ulaanbaatar last 
November, the United States is proud to be a "third neighbor" 
of Mongolia.  The third neighbor policy was developed by 
Mongolia in the early 1990s to reach out to democratic, 
market-oriented countries beyond its immediate two neighbors. 
 Mongolia cultivates other third neighbors -- among them, 
Japan, Germany, South Korea and Turkey -- but we are the only 
superpower, with all that status entails. 
 
¶9. (C) Both China and Russia regard Mongolia as their 
"backyard," and both vie for influence with each other -- and 
with "third neighbors."  Mongolia's refusal thus far to 
upgrade its status from observer to member of the Shanghai 
Cooperation Organization (SCO) is one indication of 
Mongolia's cautious, balancing approach to managing relations 
with its immediate and third neighbors.  Mongolians retain a 
visceral dislike and distrust of the Chinese (to include 
sinicized ethnic Mongols in Inner Mongolia); this is 
expressed in legal restrictions and quotas on the number of 
Chinese permanent residents in Mongolia. The current PRC 
ambassador, one of the "new" young and sophisticated types 
that the PRC has assigned throughout Asia, frequently 
complains that, despite his government's outreach to the 
people and government, he has made no headway against deeply 
held prejudices against his country.  Few Mongolians study in 
China (despite offers of scholarships) and Chinese is not 
offered as a foreign language in schools.  And, while China 
is salivating over Mongolia's rich mineral resources, the 
Mongolians have put an unwritten cap on Chinese investment in 
the mining and energy sector. 
 
¶10. (C) The Russians, in contrast, enjoy much higher 
popularity ratings among Mongolians.  There is appreciation 
for their help in gaining Mongolia's independence from China 
and for the economic, social and financial assistance 
provided by the Soviet Union for nearly 70 years.  At the 
same time, however, the Russians are unwelcome and deprecated 
for their abrupt abandonment of Mongolia in the early 1990s. 
Russia's demand for repayment of $11.4 billion in loans 
provided to Mongolia since the early 1970s bedeviled 
relations until the end of 2003, when Russia accepted a $250 
million cash payment in settlement -- a 98% discount.  In the 
past year, the Russians have begun to pay more attention to 
Mongolia, perhaps in part because of competition with China 
(and the U.S.) for influence and natural resources in 
 
ULAANBAATA 00000667  003.2 OF 005 
 
 
Mongolia.  However, Mongolia has made clear that Russians 
will have to get in line; they will enjoy no special 
preference and will have to compete with other foreign 
investors for mining, energy, and transportation project 
tenders. 
 
Building on a Solid Foundation 
------------------------------ 
 
¶11. (SBU) Next January, the U.S. and Mongolia will celebrate 
the twentieth anniversary of the establishment of diplomatic 
relations.  Over the past twenty years -- and particularly 
since 1990 -- a solid foundation has been built.  Yet, much 
remains to be done.  Let me describe five such steps. 
 
¶12. (SBU) First, we need to resolve with Mongolia the form 
and content of an agreement describing our bilateral 
relations.  Mongolia has proposed that we formalize the 
"comprehensive partnership" agreed to in the July 2004 Joint 
Presidential Statement.  In February, 2006 the U.S. presented 
Mongolia with the draft of a non-binding Declaration of 
Principles for Closer Cooperation.  Mongolia agreed with the 
content of the draft declaration, but is holding out for a 
formally negotiated "comprehensive partnership agreement" 
(modeled on the U.S.-Singapore Strategic Partnership 
Agreement) that would commit the two sides to negotiate 
separate agreements in a number of areas, first and foremost 
on Mongolia's list -- a Free Trade Agreement. I fully concur 
with the USG position taken in February that the Singapore 
model is not appropriate.  Instead, we should offer to sign 
the non-binding Declaration of Principles and to negotiate a 
series of stand-alone MOUs or agreements to cover the 
multifaceted elements we envision including in the 
partnership.  We have already started the ball rolling.  In 
April, we proposed concluding an agreement on cultural 
preservation that will enable the U.S. to retrieve and return 
to Mongolia priceless religious and cultural artifacts and 
dinosaur fossils that are being smuggled illegally out of 
Mongolia in growing numbers for sale to western (including 
U.S.) buyers. 
 
¶13. (SBU) Second, more agencies, especially at the Under 
Secre_tary level and above, need to visit Mongolia.  The past 
two years has witnessed a positive upswing in our bilateral 
relationship, leading with the exchange of presidential 
visits in 2004 and 2005.  I sincerely hope that we can 
sustain the pace of such exchanges, particularly on the 
civilian side.  We see many more visitors coming here from 
DOD than any other USG agency; that ratio does not, to my 
mind, reflect the true nature of our relationship and of U.S. 
interests in Mongolia.  Our work plan for the bilateral 
relationship should seek to fully reflect our diverse ties 
with Mongolia. 
 
¶14. (SBU) Third, we should continue to help Mongolia spread 
its wings internationally; we will generally find them a 
like-minded friend.  Our support for Mongolia's inclusion in 
the Convening Group of the Community of Democracies was a 
good example.  We should actively support Mongolia's 
participation in the track two Northeast Asia Cooperation 
Dialogue at the earliest opportunity.  In 2008, Mongolia 
faces an uphill battle against Iran to represent Asia on the 
UN Security Council.  We should begin to strategize with 
Mongolia about how to win this battle. 
 
¶15. (SBU) Fourth, the U.S. needs to engage more actively in 
public diplomacy, cultural and educational exchanges, 
including providing more paid opportunities for study and 
training in the U.S.  This will require new resources -- but 
much less than in countries where we are trying to turn 
skeptics into friends.  Here, we will be acting to safeguard 
and expand our influence.  While not "pro-U.S.," the average 
Mongolian has a genuinely and generally positive view of 
Americans and the United States.  However, there is a lot of 
ignorance about the U.S.  We need to be sensitive to a 
lingering suspicion of the U.S., as well as of democracy and 
a market economy, among the political elite.  We would do 
well not to take the Mongolian people's support for granted. 
 
¶16. (SBU) Our target audience should be the two-thirds of the 
population which is under the age of 30, and women and the 
 
ULAANBAATA 00000667  004 OF 005 
 
 
Kazakh (Moslem) minority in particular.  Women constitute 
three-quarters of the university enrollment and the same 
proportion of professionals (lawyers, judges, doctors, 
teachers, civil servants) but are under-represented in 
national and local decision-making.  Through our alliance 
with the multi-partisan National Forum for Women in Politics 
and Governance we are helping to train women to run for 
elected office in 2008. 
 
¶17. (SBU) More and more Mongolians want to study in the 
United States.  In recognition of the importance of western 
(American) education, in 2005 the Government declared English 
to be the second national language and English is now 
mandatory from grade five.  If we are to build our base of 
influence here, we need to seize the opportunity to educate 
as many of the next generation as possible, either in 
Mongolia (e.g., through the Peace Corps and our new ESL 
Micro-Scholarship program) or in the United States (e.g., 
more Fulbright, Humphrey, Eisenhower fellowships).  We 
doubled our Fulbright fellowships this year (from 3 to 6) and 
I would hope that we can sustain, if not increase, this 
number.  This year we had a bumper crop of new Peace Corps 
Volunteers (55) and expect next year's group to number around 
60, bringing the total in Mongolia to 115 or so. 
 
¶18. (SBU) We have very good relations with younger, 
western-educated politicians likely to come to positions of 
power and authority in coming years, including many young 
women.  But we should seek to expand and deepen our influence 
with this next generation through more IVP grants, study 
tours, internships with private companies and USG agencies, 
mid-career professional training, and congressional exchanges 
and fellowships.  Were I to have $100 million to invest in 
Mongolia's future, I would put it in an interest-bearing bank 
account and use the interest to send qualified students and 
mid-level professionals to the United States for as long as 
it takes to develop a cadre of western-educated technocrats 
and western-oriented politicians. 
 
¶19. (C) Last, but not least, we should work with Mongolia to 
get its house in order so that is a more effective partner. 
Mongolia's transformation into a democracy and market economy 
is far from complete; democratic behavior and norms have yet 
to be institutionalized.  We will need to use what leverage 
we have -- such as the prospect of an MCA Compact early next 
year and a Free Trade Agreement sometime in the future -- to 
encourage Mongolia to continue economic and political reform. 
 Mongolia is currently eligible for MCA, but still falls 
short in many areas: lack of a well-articulated national 
development strategy; a pervasive lack of transparency in 
government transactions; corruption, including widespread 
disregard for conflict of interest among elected and 
appointed officials; a combination of populism and lingering 
attachment to the state's role in the economy which are 
detrimental to the development of a friendly environment for 
foreign and domestic investment; police abuse of suspects and 
jail inmates; and an abysmal percentage of women among 
elected and civil servant decision makers. 
 
¶20. (C) In addition, the fact that Mongolia allowed its 
program agreement with the IMF to lapse entirely in July 2005 
should give us pause.  According to some senior Mongolian 
officials at the time, the prospect of an MCA windfall 
encouraged the government to "throw off the burdensome 
conditions" imposed by the IMF.  To date, Mongolia has shown 
no interest in negotiating a new program with the IMF and, 
worse, has resisted USG and IMF calls for fundamental reforms 
in the banking, budgetary, monetary and financial regulatory 
sectors. 
 
¶21. (C) Mongolia recently passed anti-money laundering 
legislation and the first of many anti-corruption laws. 
Passing legislation is the easy part; effective 
implementation may prove much more difficult.  In addition, 
Mongolia has not adequately addressed our concerns about 
trafficking in people, concerns which first put Mongolia on 
the Tier Two list in 2005.  When parliament reconvenes in 
October, we should continue to press for the additional 
anti-corruption legislation necessary to bring Mongolia into 
compliance with its obligations under the UN Convention 
Against Corruption; for anti-terrorist financing legislation; 
 
ULAANBAATA 00000667  005 OF 005 
 
 
and for accession to the Palermo Protocol. 
 
¶22. (SBU)  We should be willing to add resources where and 
when necessary to help Mongolia get its house in order.  This 
should include restoring the annual USAID budget for Mongolia 
to $10 million.  Dollar for dollar, the Mongolia program is 
among USAID,s most effective -- and cost efficient -- 
assistance programs.  USAID,s engagement here, in private 
sector-led growth and good governance, is responsible for 
laying the foundation that enabled Mongolia to qualify for 
MCA.  And USAID,s continued investment in and attention to 
the private sector and good governance will help make it 
possible for Mongolia to continue to re-qualify, even after 
it signs a Compact.  We should also begin in the next year to 
provide a new and substantial level of technical assistance 
to train Mongolia's law enforcement personnel so that they 
can support our global efforts to combat trafficking in 
people, drugs, counterfeit currency, and terrorism.  The 
police and other law enforcement personnel remain, in my 
mind, the "weak link" in Mongolia's democratic transition. 
 
 
¶23. (C) As we proceed, we should keep in mind that Mongolia 
currently lacks the capacity to design and implement the 
policies and programs necessary to achieve sustainable 
economic growth.  Specifically, Mongolia lacks 
western-educated, apolitical, well-paid, private and public 
sector professionals who are able to grasp the principles of 
and implement private sector-led growth and rule of law, the 
two determinants of sustainable economic growth.  This lack 
of capable manpower is probably the single, largest obstacle 
to Mongolia's ability to move forward. The bulk of the 
current political leaders and senior bureaucrats are of a 
generation that was educated in the former Soviet Union and 
steeped in socialist doctrine, government by fiat, and 
central planning.  On top of this, the social fabric of a 
small, inter-related populace abhors competition with its 
winners and losers and encourages a lowest-common denominator 
consensus approach to decision-making.  Not surprisingly, 
both these factors have contributed heavily to the current 
frustration (on both sides) over the slow progress of 
developing an MCA Compact proposal. 
 
Moving On 
--------- 
 
¶24. (SBU) As I prepare to leave Mongolia, it is with immense 
gratitude for the professional (and personal) opportunity to 
represent the American people here as well as for the support 
of a small but capable Country Team and two consecutive 
exceptional Mongolia desk officers in EAP/CM. 
¶25. (SBU) Our relationship with Mongolia is largely a success 
story. In a world filled with far more complicated and 
pressing problems, it therefore runs the risk of being 
neglected.  I am confident that with a modest amount of 
attention and resources our relationship with Mongolia will 
continue to be a success story for many years and ambassadors 
to come. 
 
 
SLUTZ